Investing Basics Know-How

You’ve carefully weighed in your own mind how you want your retirement portfolio to look:
just the right amount of your assets allocated to stocks versus fixed-income investments. You feel
comfortable with the growth/income and risk profile of your portfolio, and you have carefully
diversified your investments over all the investment categories, and even within each category. Then,
inevitably, the market jumps up or down, and your portfolio is thrown completely off balance.

Turn to any listing of mutual fund returns, or even stocks, and you will likely see a "summary" of those results, referred to as the "average" return. For example, a listing of mutual funds in a particular category may show the average return for the fund in that category. A different listing may show a particular fund's returns for each of the last five years, and an average annual return over that five-year period.

Many individuals assume those averages are all calculated in the same way. In fact, they are not.

The dictionary definition of an average is: A single value that summarizes or represents the general significance of a set of unequal values. But there are a number of different ways to present a "summary" of values, depending on what you are seeking to measure.

The American Association of Individual Investors is an independent, non-profit corporation formed for the purpose of assisting individuals in becoming effective managers of their own assets through programs of education, information and research.